Exclusive: Brokers Open Doors for EU Clients to Australian Subsidiaries

Brokers which are regulated both in the European Union and in Australia are capitalizing on their diversified license exposure. With looming new European regulations, the firms which are holding ASIC (Australian Securities and Investments Commission) licenses are using a regulatory loophole to honor customer requests to trade with higher Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term.

Earlier this spring, the European Securities Markets Authority (ESMA ESMA European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t European Securities and Markets Authority (ESMA) is an independent Authority of the European Union that is responsible for the safety, security, and stability of the European Unions’ financial system and is charged with protecting the public. The European supervisory authority for the securities sector, ESMA was established on 1 January 2011. The European Securities and Markets Authority is an independent EU authority based in Paris. It aims to contribute to the effectiveness and stability of t Read this Term) published an updated regulatory framework for retail brokers that closed the doors for clients willing to use leverage above 1:30. The news prompted an outcry on the part of the industry and some traders which are used to use higher leverage to maintain adequate exposure to the market.

While EU-regulated brokers are looking for ways to divest their exposure to the new regulations, companies which are holding an Australian license are already taking action to accommodate client requests.

Key Compliance Details

From a compliance perspective, it is not very difficult for companies to be able to move their EU clients to Australia. There is one approach which could yield a result which is detrimental to the brokerage, and that is if the broker proactively solicits clients to switch their regulatory jurisdiction.

The existing regulatory framework in the EU doesn’t prohibit clients from choosing to work with a brokerage subsidiary which is located outside of the EU, but the company can not direct clients to move their accounts.

While the ESMA is limiting some aspects of a broker's operation, other concerns have topped the list of concerns for ASIC-regulated firms.

Client Interest to Move Outside of the EU

From the short survey that we made amongst brokers, their clients are very keen to move away from the EU to use higher leverage. Several companies have been experiencing a wave of customer requests to make the transition.

While Australia and the EU are cooperating closely to synchronize their regulatory frameworks on an institutional level, the retail market is not being treated in the same way, at least for now. European brokers are thoroughly looking into ways that allow them to meet their clients’ needs and this is just one of the solutions that are being contemplated.

Client Protection

Commenting to Finance Magnates the Director of Traction Fintech, Sophie Gerber, said: “Foreign clients are protected by Australian regulations. They have the right to make a complaint to the Financial Ombudsman Service (FOS), soon to become the Australian Financial Complaints Authority (AFCA) about services received from brokers regulated in Australia by ASIC. However what ASIC expects to see of Australian brokers is substantive, and not just notional operations in Australia for those regulated by them.”

“Those thinking of obtaining ASIC authorisation should be aware that ASIC have made it clear that paying lip service to being regulated in Australia but not actually being present in any significant way is insufficient,” Mrs Grace explained.